Demand and investment in the hotel sector have remained strong through the first nine months of 2019. That’s the message told by both PPHE Hotel Group (PPHE) and Pandox, two of the top hospitality-led real estate companies in Europe. However, in a time of increasing eco-consciousness and macroeconomic instability, with customers focusing more on sustainability and authenticity, both PPHE and Pandox understand that with growth comes responsibility.
For PPHE and Pandox, the established markets of key European countries such as the UK and Germany and, for Pandox, major cities in the Nordics such as Stockholm are particularly resilient markets due to their robust business and tourism appeal.
The UK, despite the uncertainty created by Brexit, is the fifth-largest economy and one of the most attractive travel and tourism markets in the world. Moreover, it continues to deliver a well-diversified demand profile and according to Anders Nissen, CEO at Pandox, “the UK has shown positive developments through 2019” as a result. The story is the same at PPHE, who have achieved growth of 9.3% like-for-like revenue per available room in the UK, despite concerns around Brexit.
Furthermore, even in the face of increased geopolitical tensions – including the rise of populism, war and terror attacks – for investors the time for investment in the hotel property sector is now, as far as Daniel Kos, CFO at PPHE, is concerned. “A slowdown in the residential market, in particular at the luxury end, and retail have provided more opportunities for considering hotels a more profitable investment type.”
There are a number of factors these two companies see as the crucial catalysts to driving this growth. The first is urbanisation, which Nissen at Pandox says is a “megatrend which drives demand by creating increased prosperity.” The desire for people to seek out unique experiences, Kos at PPHE says, has led to an “increased appeal of hotels as destination venues for socialising, meeting, eating and drinking.” And with the world’s urban population continuing to rise, it is not surprising that the hotel sector has been benefitting from the increasing demand for well-located social hubs.
Coming hand in hand with urbanisation is the ease and speed at which people can travel. “Travel and tourism represent more than 10% of global GDP and is one of the fastest-growing economic sectors in the world,” says Nissen. As the world continues to prosper, subsequently creating increasingly attractive destinations for people to travel to, hotel properties are gradually becoming a mainstream asset class, with clear potential for higher returns than both the residential and retail sectors.
But, whilst increasing urbanisation and travel has meant that the hotel sector has grown faster than the general economy in recent years, the environmental impact of increasing travel has also grown. Though not a sector-specific issue, it is one which Nissen and Kos highlight as absolute priorities for their businesses.
As part of the hospitality supply chain, addressing the question of reducing their environmental impact and balancing the growth within the sector is the key to their continued success and attractiveness as an investment proposition. “In the industry, we are seeing eco-consciousness on the rise,” attests Kos, who believes that their hotel guests are no longer simply looking for the highest quality. “Millennials want hotels to go green, creating sustainable and authentic experiences” when they travel.
Finding new ways to mitigate the climate impact from hotel properties, operations, construction and travel are just some of the issues facing the sector but, whilst these issues may seem daunting to some, for Kos, they provide a unique business opportunity. “The companies being the most active and progressive,” he explains, “can win new customers and business at the expense of the laggards.” As a result, the sector could see a significant change in the coming years, as consumer appetites cause seismic shifts in the delivery of hospitality altogether.
There is no question then that consumer trends are shifting from aesthetics to sustainability. But how does the industry keep up? For both PPHE and Pandox, being nimble is the key to seizing an attractive investment opportunity. “As with all consumer trends, businesses are often either faced with an opportunity or a challenge. With a unique owner-operator business model, we often find ourselves in prime position to take advantage of these shifts in consumer tastes,” says Kos.
Looking to the future, for Nissen, “hotels fill an important function in society – for business, tourism, local communities and the economy in general and we pride ourselves on delivering responsible experiences.” Therefore, by embracing this new environmental age head-on and delivering positive solutions to mitigate its climate impact, the hotel sector can stay relevant in a changing society and attractive to investors.
